Mikaela Whitman is a partner in Pasich LLP’s New York office and a member of the firm’s insurance recovery practice. That makes her someone in-demand as events assess the damage from COVID-19.
Connect picked Whitman’s brain about how to plan ahead going forward.
There is a lot of buzz around force majeure clauses and the coronavirus. Are force majeure clauses related to insurance policies that may provide coverage for losses arising out of the coronavirus? If so, how?
In the current environment, with interruptions in business and losses skyrocketing, everyone wants to know how to minimize their costs and prevent future damages. Force majeure clauses and insurance coverage are two mechanisms to accomplish those goals. However, it is important not to conflate the meaning of the two and to understand that they are distinct, sometimes completely unrelated risk management tools.
A force majeure clause is a contractual provision, found in a wide variety of contracts, that excuses performance when a force majeure event renders performance of the contract impracticable or impossible. If the ability of your business to perform contractual duties is impaired by the coronavirus, you should determine if the contract has a force majeure clause and if so, carefully consider its specific language, as it can dictate the meaning, effect, and scope of a force majeure event.
On the other hand, a business buys an insurance policy, which is a contract between the insured business and the insurer, to provide coverage for the losses, claims, and lawsuits associated with certain events. For example, several types of insurance policies may provide \ coverage for the losses and actual or possible claims and lawsuits associated with the coronavirus.
What kinds of insurance may provide coverage for losses and claims related to the coronavirus?
Several kinds of policies may provide coverage for coronavirus related claims. They include, but are not limited to: event cancellation insurance, property insurance, general liability insurance, workers compensation and employers’ liability insurance, directors and officers insurance, and political risk insurance. But it is important that businesses review all of their insurance policies and carefully review the policy language—coverage may be found in policies that may otherwise be overlooked because of overly broad interpretations of exclusions applicable, for example, to “communicable diseases,” or the incorrect notion that the presence of the coronavirus does not constitute physical loss or damage to property.
What other risks may the hospitality industry face that insurance may cover?
When individuals attend events, conferences, restaurants, etc., they may be exposed to or affected by the coronavirus, and in turn, may sue the location owner, event promoter, vendor, sponsor—anyone they might blame because they contracted the coronavirus. In such cases, a business; general liability policy should cover claims for bodily injury (including, sickness, disease, death, and frequently emotional distress) and claims of damage to property (contamination). Liability policies can be invaluable because they typically provide a defense to the claim or lawsuit as well as any resulting damages the insured must pay. Similarly, if a business faces bodily injury or disease related claims from the coronavirus by its employees, it should look to its workers compensation and employers liability policies.
What should businesses in the hospitality industry be doing now to maximize their chances of insurance coverage for coronavirus-related losses?
Not surprisingly, I have received this question quite often lately. Below are a few “action items.”
1. Gather all of your business’s insurance policies in one place and review all of them.
2. Do not assume that a claim or loss is not covered. If there is any question regarding coverage, discuss with someone who has an expertise in insurance, likely an insurance coverage attorney.
3. Review each policy for any timing restraints and notice provisions that could jeopardize the availability of coverage. For example, event cancellation and property policies often require notice “as soon as practicable” and may require notification of events “likely to lead to a claim” not only the claim itself.
4. Consider all potential losses and gather any and all documentation to support these losses. This includes, for example, affected contracts (i.e., those with vendors, venues and suppliers), lease agreements, historical attendance at events and current event attendance records, cancelled and outstanding invoices, documentation of any mitigation efforts, any government related orders reviewed or considered, notices of postponements and cancellations, and documentation of general costs incurred due to the coronavirus.
Whitman can be contacted at email@example.com.